Paragon Commentary

Futures File: Pork, Grains & Mexican Peso

Jun 08, 2018

Pork Market Sizzles Higher

Hog futures are nearing a one-year high, trading Friday for over 80 cents per pound. Prices are exploding as short-term supplies run low as meatpackers buy hogs ahead of the grilling season and Father’s Day. Upcoming hot weather will also put stress on hogs, which will cause the animals to have trouble gaining weight, further limiting supplies of meat. As a result, hog prices have risen by more than 10% over the last two weeks.

Despite the recent rally, many hog producers are worried that prices could stumble again if trade disputes continue with Mexico, China, and Canada, three major importers of U.S. pork. On Thursday, Mexico, the largest buyer of U.S. pork, announced they would impose a 20% tariff on U.S. pork if President Trump follows through on the threatened tariffs against Mexican steel and aluminum.

While a retaliatory tariff would be devastating for farmers, consumers would likely benefit from this move, as it could lead to a glut of pork in the United States and lower prices at the grocery store for pork chops, hot dogs, and bacon.

Grains Grind Lower

Corn and soybean prices tumbled to a four-month low this week as farmers watched good weather send prices into the dust. The corn crop is almost entirely in the ground and soybeans are nearing 75% planted. Early reports estimate that these are the healthiest crops in 20 years, raising expectations for bumper crops.

Farmers are largely happy about good weather, but fears of a large crop and looming trade issues are scaring investors away from corn and soybeans. As they dumped their investments in the markets Friday, July corn and soybean futures fell to $3.73 and $9.62 per bushel, respectively.

Mexican Peso Heads South

The Mexican peso is nearing a record low value, falling well below $0.05 in value this week for the first time since early 2017.

The peso was hard-hit by President Trump’s election and expectations that renegotiated trade deals will hurt the Mexican economy. Ongoing disputes over NAFTA and other trade policies continue to weigh on our southern neighbor, pulling the currency to 4.9 cents on Friday.

A weak currency hurts Mexicans’ ability to buy U.S. goods like machinery, vehicles, and medical instruments, but it also makes Mexican goods and labor cheaper to American consumers and companies. Additionally, a weak peso makes a Mexican vacation less expensive as the U.S. dollar carries even more value south of the border.